Senate passes tax-cut bills, orders further review

Topeka  Senators approved 14 of the 16 tax bills on their agenda Wednesday, providing $23.3 million in relief to individuals and corporations in the next fiscal year, but sent the bulk of the cuts back for more review.

The measures adopted - some of which cut taxes over the next three years - included incentives for investment in new businesses and job creation, as well as providing some homeowners with property tax relief. The bills now go to the House.

One bill that wasn't advanced started out with a $2 million price tag but quickly grew over the course of debate to more than $41 million, including income tax breaks for poor Kansans, investment tax credits for businesses and exempting the spouses of deployed soldiers from filing a Kansas tax return.

"It was a death by a thousand cuts. The pieces piled up," said Senate Majority Leader Derek Schmidt, R-Independence, in moving to send the bill back to committee for review. "I'm a little bit concerned where we are ending up."

The debate was the Senate's first protracted tax discussion this session and came a day after House Speaker Melvin Neufeld and other GOP leaders decried the lack of progress. Neufeld was more encouraged after Wednesday's debate, though the Senate cuts total about $40 million less than the House target for this session.

"We said all along that our tax package is $60 million. We've planned for $60 million," said Neufeld, R-Ingalls.

Joint negotiations

The differences in tax policies will now be brokered by members of both chambers in committee, where Neufeld said "negotiations are always interesting."

Senate President Steve Morris, R-Hugoton, didn't sound like the Senate would be willing to add much more to the mix.

"It's too early to say. Our goal was to get the Senate position and for it to be a reasonable position," he said.

Of concern to some senators is the effect cutting taxes will have on future state revenues. Projections have indicated that the state could be in a position of making significant program cuts by 2010, or reversing course and raising taxes.

The Senate did increase one tax during its debate, placing a 10 percent excise tax on the sale of sexually oriented products or businesses. The tax on adult bookstores, video stores, escort services and strip clubs would generate about $917,000 for the state.

Senators confined the rest of the debate to targeted tax cuts, aimed at promoting greater investment in the emerging biofuels and research industries sprouting across Kansas.

One bill that passed would establish a special tax zone in Johnson County to encourage investment in research companies, giving that county permission to raise its sales or property taxes for construction of new research centers associated with higher education institutions.

The costliest bill approved would cut the corporate franchise tax by $32.2 million over three years, reducing what businesses pay for the privilege of operating in Kansas and eliminating the tax altogether for businesses with less than $500,000 in assets.

That bill, sought by Gov. Kathleen Sebelius, also contains a provision exempting Social Security benefits from state income taxes if a senior's household income is $50,000 or less. The exemption would cost Kansas $17.9 million in lost revenue over three years.

The House has approved more-aggressive proposals, such as eliminating the franchise tax over three years and exempting all Social Security benefits, something 27 other states already do.

Senators also approved exempting certain expenses associated with rebuilding utility infrastructure damaged by natural disasters from the state sales tax.

Budget considerations

The Senate debate came a day after the chamber debated a proposed budget for the next fiscal year. State spending is expected to be about $12.4 billion.

Senators have been reluctant to debate tax bills, delaying action until drafting a budget was well under way and the state had a better idea of what to expect in tax collections over the next 18 months.

So far, the state has collected $83 million more than anticipated for the current fiscal year.

The next estimate will be made in early April, while legislators are on their traditional three-week hiatus.

When they return, legislators will debate the final reconciliation budget bill, as well as compromises on the numerous tax packages, and adjourn for the year.